Boeing Beats

Boeing (BA) reported 4th Quarter December 2017 earnings of $4.80 per share on revenue of $25.4 billion. The consensus earnings estimate was $2.91 per share on revenue of $24.7 billion. The Earnings Whisper number was $2.98 per share. Revenue grew 8.9% on a year-over-year basis.

The company said it expects 2018 earnings of $13.80 to $14.00 per share on revenue of $96.0 billion to $98.0 billion. The current consensus earnings estimate is $12.07 per share on revenue of $93.45 billion for the year ending December 31, 2018.

The Boeing Company [NYSE: BA] reported fourth-quarter revenue of $25.4 billion with GAAP earnings per share of $5.18 and core earnings per share (non-GAAP)* of $4.80 reflecting record deliveries and strong performance, as well as favorable tax reform of $1.74 per share (Table 1).

Revenue was $93.4 billion for the full year reflecting deliveries mix with GAAP earnings per share of $13.43 and core earnings per share (non-GAAP)* of $12.04 reflecting strong execution and favorable tax reform.

"Across Boeing our teams delivered a record year of financial and operational performance as they focused on disciplined execution of production and development programs, growing services, and delivering value to customers," said Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg. "That performance enables increased investments in our people and our business, and greater cash return to shareholders."

"In 2017 we delivered the first 737 MAX airplanes, launched the 737 MAX 10 and completed the 787-10 first flight, all while delivering more commercial airplanes than ever before. We flew the first KC-46 Tanker to be delivered to the U.S. Air Force, were awarded an initial contract for the Ground Based Strategic Deterrent program, and a contract to provide 36 F-15 fighters to Qatar. We launched Boeing Global Services during the year, to deliver greater lifecycle value, and achieved growth that outpaced the market."

"We actively positioned for future markets and growth by developing new products and services, investing to build vertical capabilities, launching the HorizonX innovation organization and bringing in new capabilities, including the acquisition of Aurora Flight Sciences. Looking forward, our team remains focused on winning through innovation, driving growth and productivity and extending our position as the worlds leading aerospace company - delivering the best value to our customers, our employees and our shareholders."

Operating cash flow in the quarter of $2.9 billion was driven by strong operating performance (Table 2). During the quarter, the company repurchased 6.7 million shares for $1.7 billion and paid $0.8 billion in dividends. For the full year, the company repurchased 46.1 million shares for $9.2 billion and paid $3.4 billion in dividends. Based on strong cash generation and confidence in the companys outlook, the board of directors in December increased the quarterly dividend per share by 20 percent and replaced the existing share repurchase program with a new $18 billion authorization. Share repurchases under the new authorization are expected to be made over the next 24 to 30 months.

Table 3. Cash, Marketable Securities and Debt Balances

Quarter-End

(Billions)

Q4 17

Q3 17

Cash

$8.8

$8.6

Marketable Securities1

$1.2

$1.4

Total

$10.0

$10.0

Debt Balances:

The Boeing Company, net of intercompany loans to BCC

$8.6

$7.8

Boeing Capital, including intercompany loans

$2.5

$3.0

Total Consolidated Debt

$11.1

$10.8

1 Marketable securities consists primarily of time deposits due within one year classified as "short-term investments."

Cash and investments in marketable securities totaled $10.0 billion, unchanged from the beginning of the quarter (Table 3). Debt was $11.1 billion compared to $10.8 billion at the beginning of the quarter.

Total company backlog at quarter-end was $488 billion, up from $474 billion at the beginning of the quarter, and included net orders for the quarter of $40 billion.

Segment Results

Commercial Airplanes

Table 4. Commercial Airplanes

Fourth Quarter

Full Year

(Dollars in Millions)

2017

2016

Change

2017

2016

Change

Commercial Airplanes Deliveries

209

185

13%

763

748

2%

Revenues1

$15,466

$14,382

8%

$56,729

$58,012

(2)%

Earnings from Operations1

$1,784

$1,191

50%

$5,432

$1,995

172%

Operating Margin1

11.5%

8.3%

3.2 Pts 9.6%

3.4%

6.2 Pts

1 Prior year results have been adjusted to reflect the realignment of the services business.

During the quarter, Commercial Airplanes delivered a record 209 airplanes and the 787 program rolled out the first 787-10 airplane expected to deliver to launch customer Singapore Airlines. The 737 program delivered 44 MAX airplanes during the quarter and has captured over 4,300 orders since launch for the 737 MAX, including a recent order from flydubai for 175 airplanes. Development on the 777X is on track as production began on the first 777X flight test airplane this quarter.

During the quarter, Defense, Space & Security signed a contract with the U.S. Air Force to provide 36 advanced F-15 fighter aircraft to Qatar. The KC-46 Tanker program received a contract to provide the first international KC-46 Tanker to Japan and received FAA certification for the 767-2C aircraft, verifying that the fundamental design of the KC-46 Tanker is safe and reliable. Additionally, we continued to make progress on the Commercial Crew program as we successfully completed Design Certification Review, which is a requirement prior to docking with the International Space Station.

Backlog at Defense, Space & Security was $50 billion, of which 40 percent represents orders from international customers.

During the quarter, Global Services was awarded a contract for F-15 Qatar Sustainment, signed an agreement with All Nippon for the 787 landing gear exchange program, and India selected BGS for P-8I Poseidon training. Global Services began flight testing on the first 737-800 Boeing Converted Freighter and received an order from GECAS for seven conversions. We continued to expand our digital solutions as a key enabler for growth, with our portfolio reaching around $1 billion of annual revenue in the quarter.

Additional Financial Information

Table 7. Additional Financial Information

Fourth Quarter

Full Year

(Dollars in Millions)

2017

2016

2017

2016

Revenues

Boeing Capital

$73

$87

$307

$298

Unallocated items, eliminations and other

$291

$118

$660

($227)

Earnings from Operations

Boeing Capital

$27

$23

$114

$59

Unallocated pension/postretirement

$354

$119

$1,308

$370

Other unallocated items and eliminations

($305)

($241)

($1,055)

($733)

Other income/(loss), net

$35

($1)

$129

$40

Interest and debt expense

($93)

($79)

($360)

($306)

Effective tax rate

(5.4)%

22.4%

18.4%

12.1%

At quarter-end, Boeing Capitals net portfolio balance was $3.0 billion. Total pension expense for the fourth quarter was $105 million, down from $434 million in the same period of the prior year. Revenue in other unallocated items and eliminations increased primarily due to timing of eliminations of intercompany aircraft deliveries, including those accounted for under operating lease. Earnings attributed to other unallocated items and eliminations decreased primarily due to higher deferred compensation. The effective tax rate for the fourth quarter reflects the Tax Cuts and Jobs Act enacted into law in December 2017, which reduced income tax expense by $1,051 million and increased fourth-quarter earnings per share by $1.74, primarily due to the remeasurement of our net U.S. deferred tax liabilities to reflect the reduction in the federal tax rate from 35% to 21%.

Outlook

The Company is adopting two new accounting standards, as previously planned, in the first quarter of 2018, the revenue recognition standard (ASC 606) and the pension and postretirement accounting changes (ASC 715). Additional exhibits are included on pages 15-18 with restated 2017 and 2016 results adjusted for the adoption of ASC 606 and ASC 715. The Company has provided this comparable information in the exhibits and below to help investors understand the 2018 financial outlook (Table 8).

Table 8. 2018 Financial Outlook

Restated

(Dollars in Billions, except per share data) 2018

2017 Results

The Boeing Company

Revenue

$96.0 - 98.0

$94.0

GAAP Earnings Per Share

$15.90 - 16.10

$13.85

Core Earnings Per Share*

$13.80 - 14.00

$12.33

Operating Cash Flow

$15.0

$13.3

Commercial Airplanes

Deliveries

810 - 815

763

Revenue

$59.5 - 60.5

$58.0

Operating Margin

>11.0%

9.4%

Defense, Space & Security

Revenue

$21.5 - 22.5

$20.6

Operating Margin

11.0%

10.7%

Global Services

Revenue

$15.0 - 15.5

$14.6

Operating Margin

15.5%

15.4%

Boeing Capital

Portfolio Size

Stable

$3.0

Revenue

$0.2

$0.3

Pre-Tax Earnings

$0.05

$0.1

Research & Development

$3.7

$3.2

Capital Expenditures

$2.2

$1.7

Pension Expense 1

$0.1

$0.4

Effective Tax Rate

16.0%

16.3%

1 Approximately $1.4 billion of pension expense is expected to be allocated to the business segments

We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles in the United States of America (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the companys ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core operating earnings is defined as GAAP earnings from operations excluding unallocated pension and other postretirement benefit expense. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of unallocated pension and other postretirement benefit expense. Unallocated pension and other postretirement benefit expense represents the portion of pension and other post-retirement costs that are not recognized by business segments for segment reporting purposes. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings/per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude unallocated pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts. A reconciliation between the GAAP and non-GAAP measures is provided on page 14.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow without capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.

Adoption of ASC 606 and ASC 715

We are adopting Accounting Standards Update Nos. 2014-09, Revenue from Contracts with Customers (ASC 606) and ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASC 715) in the first quarter of 2018. The following definition reflects the changes to Non-GAAP measures as a result of the adoption of those standards.

Core operating earnings is defined as GAAP earnings from operations excluding the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of the FAS/CAS service cost adjustment and Non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings/per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude non-service pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts. A reconciliation between the GAAP and non-GAAP measures is provided on pages 17-18.

Caution Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "may," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions generally identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact. Forward-looking statements are based on expectations and assumptions that we believe to be reasonable when made, but that may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: (1) general conditions in the economy and our industry, including those due to regulatory changes; (2) our reliance on our commercial airline customers; (3) the overall health of our aircraft production system, planned commercial aircraft production rate changes, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards; (4) changing budget and appropriation levels and acquisition priorities of the U.S. government; (5) our dependence on U.S. government contracts; (6) our reliance on fixed-price contracts; (7) our reliance on cost-type contracts; (8) uncertainties concerning contracts that include in-orbit incentive payments; (9) our dependence on our subcontractors and suppliers, as well as the availability of raw materials; (10) changes in accounting estimates; (11) changes in the competitive landscape in our markets; (12) our non-U.S. operations, including sales to non-U.S. customers; (13) threats to the security of our or our customers information; (14) potential adverse developments in new or pending litigation and/or government investigations; (15) customer and aircraft concentration in our customer financing portfolio; (16) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates; (17) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (18) the adequacy of our insurance coverage to cover significant risk exposures; (19) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, sanctions or natural disasters; (20) work stoppages or other labor disruptions; (21) substantial pension and other postretirement benefit obligations; (22) potential environmental liabilities.

Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

The Boeing Company and Subsidiaries Reconciliation of Non-GAAP Measures (Unaudited)

The tables provided below reconcile the non-GAAP financial measures core operating earnings, core operating margin, and core earnings per share with the most directly comparable GAAP financial measures, earnings from operations, operating margin, and diluted earnings per share. See page 7 of this release for additional information on the use of these non-GAAP financial measures.

(Dollars in millions, except per share data)

Fourth Quarter

Full Year

2017

2016

2017

2016

Revenues

$25,368

$23,286

$93,392

$94,571

GAAP Earnings From Operations

3,030

2,183

10,278

5,834

Unallocated Pension Income

(312)

(88)

(1,120)

(217)

Unallocated Other Postretirement Benefit Income

(42)

(31)

(188)

(153)

Unallocated Pension and Other Postretirement Benefit Income (354)

(119)

(1,308)

(370)

Core Operating Earnings (non-GAAP)

$2,676

$2,064

$8,970

$5,464

GAAP Diluted Earnings Per Share

$5.18

$2.59

$13.43

$7.61

Unallocated Pension Income

($0.51)

($0.14)

($1.83)

($0.33)

Unallocated Postretirement Benefit Income

($0.07)

($0.05)

($0.31)

($0.24)

Provision for deferred income taxes on adjustments (1)

$0.20

$0.07

$0.75

$0.20

Core Earnings Per Share (non-GAAP)

$4.80

$2.47

$12.04

$7.24

Weighted Average Diluted Shares (millions)

605.1

630.3

610.7

643.8

(1) The income tax impact is calculated using the tax rate in effect for the non-GAAP adjustments.

The Boeing Company and Subsidiaries Consolidated Statements of Operations - Restated (Unaudited)

The Company is adopting two new accounting standards, as previously planned, in the first quarter of 2018, the revenue recognition standard (ASC 606) and the pension and postretirement accounting changes (ASC 715). The restated amounts below reflect the impact of the adoption of ASC 606 and ASC 715.

The Boeing Company and Subsidiaries Summary of Business Segment Data - Restated (Unaudited)

The restated amounts below reflect the impact of the adoption of ASC 606 and ASC 715.

(Dollars in millions)

2017

Q4 2017

Q3 2017

Q2 2017

Q1 2017

2016

Revenues:

Commercial Airplanes

$58,014

$15,388

$15,393

$14,280

$12,953

$59,378

Defense, Space & Security

20,561

5,257

5,050

5,142

5,112

20,180

Global Services

14,581

3,797

3,579

3,552

3,653

13,819

Boeing Capital

307

73

70

72

92

298

Unallocated items, eliminations and other

542

255

131

5

151

(179)

Total revenues

94,005

24,770

24,223

23,051

21,961

93,496

Earnings from operations:

Commercial Airplanes

5,452

1,787

1,513

1,282

870

1,981

Defense, Space & Security

2,193

544

486

614

549

1,678

Global Services

2,246

559

495

569

623

2,159

Boeing Capital

114

27

23

25

39

59

Segment operating profit

10,005

2,917

2,517

2,490

2,081

5,877

Unallocated items, eliminations and other

(1,099)

(328)

(233)

(317)

(221)

(707)

FAS/CAS service cost adjustment

1,438

389

346

357

346

1,357

Earnings from operations

10,344

2,978

2,630

2,530

2,206

6,527

Other income/(loss), net

123

32

40

25

26

(438)

Interest and debt expense

(360)

(93)

(87)

(93)

(87)

(306)

Earnings before income taxes

10,107

2,917

2,583

2,462

2,145

5,783

Income tax (expense)/benefit

(1,649)

403

(773)

(713)

(566)

(749)

Net earnings

$8,458

$3,320

$1,810

$1,749

$1,579

$5,034

Additional information:

Unallocated items, eliminations and other:

Share-based plans

($77)

($10)

($21)

($25)

($21)

($66)

Deferred compensation

(240)

(66)

(78)

(46)

(50)

(46)

Amortization of previously capitalized interest (96)

(28)

(22)

(22)

(24)

(106)

Eliminations and other unallocated items

(686)

(224)

(112)

(224)

(126)

(489)

Unallocated items, eliminations and other

($1,099) ($328)

($233)

($317)

($221)

($707)

FAS/CAS service cost adjustment:

Pension

$1,127

$316

$271

$278

$262

$1,029

Postretirement

311

73

75

79

84

328

FAS/CAS service cost adjustment

$1,438

$389

$346

$357

$346

$1,357

Other income/(loss), net:

Other income

$129

$35

$45

$27

$22

$40

Non-operating pension expense

117

29

26

28

34

(327)

Non-operating postretirement expense

(123)

(32)

(31)

(30)

(30)

(151)

Other income/(loss), net

$123

$32

$40

$25

$26

($438)

The Boeing Company and Subsidiaries Reconciliation of Non-GAAP Measures - Restated (Unaudited)

The tables provided below reconcile the non-GAAP financial measures core operating earnings, core operating margin, and core earnings per share with the most directly comparable GAAP financial measures, earnings from operations, operating margin, and diluted earnings per share as restated after the adoption of ASC 606 and ASC 715. See page 7 of this release for additional information on the use of these non-GAAP financial measures.

Guidance

Full Year

Full Year

(Dollars in millions, except per share data)

2018

2017

2016

$ millions

Per Share

$ millions

Per Share

$ millions

Per Share

Revenues

$94,005

$93,496

Earnings from operations (GAAP)

10,344

6,527

Operating margins

11.0%

7.0%

FAS/CAS service cost adjustment:

Pension FAS/CAS service cost adjustment(1)

(1,127)

(1,029)

Postretirement FAS/CAS service cost adjustment(1)

(311)

(328)

FAS/CAS service cost adjustment

($1,395)

($1,438)

($1,357)

Core operating earnings (non-GAAP)

8,906

5,170

Core operating margins (non-GAAP)

9.5%

5.5%

Diluted earnings per share (GAAP)

$15.90 - 16.10

$13.85

$7.83

Pension FAS/CAS service cost adjustment(1)

($1,395)

($1,127)

($1.84)

($1,029)

($1.60)

Postretirement FAS/CAS service cost adjustment(1)

(311)

($0.51)

(328)

($0.51)

Non-operating pension expense(1)

($170)

(117)

($0.19)

327

$0.51

Non-operating postretirement expense(1)

123

$0.20

151

$0.23

Provision for deferred income taxes on adjustments(2)

501

$0.82

308

$0.48

Subtotal of adjustments

($2.10)

($931)

($1.52)

($571)

($0.89)

Core earnings per share (non-GAAP)

$13.80 - 14.00

$12.33

$6.94

Weighted average diluted shares (in millions)

585 - 590

610.7

643.8

(1) Prior to the implementation of ASC 715, these categories were previously called unallocated pension and postretirement expenses.

(2) The income tax impact is calculated using the tax rate in effect for non-GAAP adjustments.

The Boeing Company and Subsidiaries Reconciliation of Non-GAAP Measures - Restated (Unaudited)

The tables provided below reconcile the non-GAAP financial measures core operating earnings, core operating margin, and core earnings per share with the most directly comparable GAAP financial measures, earnings from operations, operating margin, and diluted earnings per share as restated after the adoption of ASC 606 and ASC 715. See page 7 of this release for additional information on the use of these non-GAAP financial measures.

(Dollars in millions, except per share data)

Q4 2017

Q3 2017

Q2 2017

Q1 2017

$ millions

Per Share

$ millions

Per Share

$ millions

Per Share

$ millions

Per Share

Revenues

$24,770

$24,223

$23,051

$21,961

Earnings from operations (GAAP)

2,978

2,630

2,530

2,206

Operating margins

12.0%

10.9%

11.0%

10.0%

FAS/CAS service cost adjustment:

Pension FAS/CAS service cost adjustment(1)

(316)

(271)

(278)

(262)

Postretirement FAS/CAS service cost adjustment(1)

(73)

(75)

(79)

(84)

FAS/CAS service cost adjustment

(389)

(346)

(357)

(346)

Core operating earnings (non-GAAP)

$2,589

$2,284

$2,173

$1,860

Core operating margins (non-GAAP)

10.5%

9.4%

9.4%

8.5%

Diluted earnings per share (GAAP)

$5.49

$2.99

$2.87

$2.54

Pension FAS/CAS service cost adjustment(1)

($316)

(0.52)

($271)

(0.45)

($278)

(0.46)

($262)

(0.42)

Postretirement FAS/CAS service cost adjustment(1)

(73)

(0.12)

(75)

(0.12)

(79)

(0.13)

(84)

(0.14)

Non-operating pension expense(1)

(29)

(0.05)

(26)

(0.05)

(28)

(0.05)

(34)

(0.06)

Non-operating postretirement expense(1)

32

0.05

31

0.05

30

0.05

30

0.05

Provision for deferred income taxes on adjustments(2) 135

0.22

119

0.20

125

0.21

122

0.20

Subtotal of adjustments

(251)

($0.42)

(222)

($0.37)

($230)

($0.38)

($228)

($0.37)

Core earnings per share (non-GAAP)

$5.07

(3)

$2.62

$2.49

$2.17

Weighted average diluted shares (in millions)

605.1

606.3

609.6

621.2

(1) Prior to the implementation of ASC 715, these categories were previously called unallocated pension and postretirement expenses.

(2) The income tax impact is calculated using the tax rate in effect for non-GAAP adjustments.

(3) Includes $2.10 per share related to the Tax Cuts and Jobs Act enacted into law in December 2017.